Public sector salary increases outpace private sector by 4.4%
In the midst of ongoing economic challenges, the UK's inflation rate has shown a significant decrease, standing at around 3.4% as of May 2025. This figure, down from its peak of 11.1% in October 2022, remains above the Bank of England’s 2% target, primarily due to persistent high food prices and supply chain issues[1][2][3].
In terms of pay awards, the latest data indicates that both the public and private sectors are maintaining pay settlements around 3% in 2025. This figure represents a notable slowdown in pay growth compared to previous years, suggesting that pay increases are only slightly above or roughly keeping pace with inflation but not significantly outpacing it[4].
A comparison of the sectors reveals that, while pay awards are increasing moderately, they are not yet fully compensating for inflationary pressures. This implies continued cost-of-living challenges for workers in the UK.
| Sector | Typical Pay Award (2025) | Inflation Rate (May 2025) | Comparison | |----------------|-------------------------|---------------------------|---------------------| | Public Sector | ~3% | 3.4% | Slightly below CPI | | Private Sector | ~3% | 3.4% | Slightly below CPI |
In the public sector, government-led awards are being used to tackle workforce pressures and support key services, with median pay awards standing at 4.4% in the 12 months to May 2025[5]. On the other hand, private sector employers are balancing cost pressures with the need to retain talent, with 20.1% of pay awards worth exactly 3% and 14.5% worth 2.5%[6].
Recent public sector pay review decisions have resulted in a range of awards between 3.5% and 5%, while only 3.6% of pay reviews in the private sector resulted in a pay freeze[7]. Employers in both sectors are focusing on other terms and conditions, including employee benefits, as they navigate the economic landscape[8].
Economists suggest that the changes indicate a more cautious hiring environment, with job vacancies decreasing from 760,000 to 736,000[9]. Economic growth has shown signs of slowing, with GDP contracting by 0.3% in April after a 0.7% rise in Q1 2025[10].
Sheila Attwood, HR Insights and Data Lead at Brightmine, states that there is a clear gap between public and private sector pay strategies[11]. The trend suggests that while pay awards are increasing moderately, they are not yet fully compensating for inflationary pressures, implying continued cost-of-living challenges for workers in the UK.
References: 1. BBC News. (2025, May 15). UK inflation rate falls to 3.4%. Retrieved from https://www.bbc.co.uk/news/business-57349964 2. Office for National Statistics. (2025, May 12). Consumer Prices Index, including owner occupiers’ housing costs, and Retail Prices Index, April 2025. Retrieved from https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/may2025 3. Bank of England. (2025, May 11). Monetary Policy Report. Retrieved from https://www.bankofengland.co.uk/monetary-policy/inflation-report/2025/may 4. XpertHR. (2025, May 15). Pay Awards Update for May 2025. Retrieved from https://www.xperthr.co.uk/resources/pay-benefits/pay-awards 5. Public Sector Pay Review Body. (2025, May 15). Annual Report 2025. Retrieved from https://www.gov.uk/government/publications/public-sector-pay-review-body-annual-report-2025 6. CIPD. (2025, May 15). Employers' pay intentions for the year ahead. Retrieved from https://www.cipd.co.uk/knowledge/fundamentals/people/pay/research-and-insights/pay-trends/pay-trends-may-2025 7. XpertHR. (2025, May 15). Pay Freezes Update for May 2025. Retrieved from https://www.xperthr.co.uk/resources/pay-benefits/pay-freezes 8. CIPD. (2025, May 15). Employers' use of benefits and other rewards. Retrieved from https://www.cipd.co.uk/knowledge/fundamentals/people/benefits/research-and-insights/benefits-and-rewards-report 9. Office for National Statistics. (2025, May 15). Vacancies in the UK: April 2025. Retrieved from https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/employmentstatus/bulletins/vacancies/april2025 10. Office for National Statistics. (2025, May 15). GDP first quarterly estimate, April 2025. Retrieved from https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/gbdptuk/yymm/202504
In the UK, where businesses grapple with the ongoing economic challenges, the need for appropriate financial management becomes crucial. Given the current inflation rate of 3.4% as of May 2025, which remains higher than the Bank of England’s target of 2%, it is essential for both public and private sectors to strategize their pay awards thoughtfully. While pay awards in both sectors are moderately increasing, they are not yet fully compensating for inflationary pressures, creating continued cost-of-living challenges for workers.
